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3 June, 15:56

Sheridan Company uses the perpetual inventory and the gross method. On March 1, it purchased $83000 of inventory, terms 2/10, n/30. On March 3, Sheridan returned goods that cost $7200. On March 9, Sheridan paid the supplier. On March 9, Sheridan should credit

a. purchase discounts for $1516.

b. inventory for $1516.

c. purchase discounts for $1660.

d. inventory for $1660.

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  1. 3 June, 18:58
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    b. inventory for $1516.

    Explanation:

    Term 2/10, n/30 means there is a discount of 2% is available on payment of due amount within discount period of 10 days after sale and net credit period of 30 days.

    Purchase value = $83,000

    Purchases return = $7,200

    Amount Due = $83,000 - $7,200 = $75,800

    As the $75,800 is paid within discount period, so discount will be given to customer

    Discount = $75,800 x 2% = $1,516

    Payment Made = $75,800 - $1,516 = $74,284

    Gross method does not record the discount value it recognise the inventory at its gross amount and discount is adjusted in the inventory account after that.
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